Michigan attorneys urge changes to proposed IOLTA rule, warn of cash‑flow harms for small firms

Several Michigan lawyers, the Attorney Discipline Board and the Attorney Grievance Commission took part in a May 2025 Michigan Supreme Court public hearing on proposed amendments to Michigan Rule of Professional Conduct 1.15 and proposed additions 1.15b and 1.15c, which would change how attorneys handle client funds held in IOLTA (interest on lawyers' trust accounts). Speakers split on two central issues: whether the court should include a presumptive timing benchmark for removing earned fees from trust accounts, and whether the rules should permit or restrict nonrefundable fees.

Shelly Kester, owner of Wilson Kester, The Empowered Divorce Source, told the court that imposing a fixed waiting period to transfer earned fees from trust to operating accounts would be “unnecessary and impractical.” Kester said client funds are already protected by separation into client trust accounts and by written fee agreements that set invoice cadence. “A one‑size‑fits‑all requirement would needlessly complicate a system that already functions effectively,” she said.

Lisa Speaker, an appellate attorney who circulated a joint letter with family‑law colleagues, said the proposed language could force small and solo firms to increase retainer amounts or decline cases because delayed access to earned fees would strain cash flow and payroll. “If those payment plans are going to stretch out what they owe over the course of a couple years, it’s going to create a hardship on the firm,” Speaker said, urging the court to consider the access‑to‑justice impact on clients who cannot pay large upfront fees.

John Burgess, deputy director of the Attorney Discipline Board, said the board supports most of the amendments, which the board said provide clarity on lawyers’ fiduciary duties, but disagrees with using rule 1.15 to resolve the permissibility of nonrefundable fees. The board urged that questions about allowing or restricting nonrefundable fees be addressed in a revision to Rule 1.5, which governs fees generally. Burgess also noted that the comments’ 30‑day benchmark is described as a presumptive standard, not an absolute requirement: “30 days is not a requirement for reasonableness,” he told the court.

Kimberly Uhuru of the Attorney Grievance Commission urged the court to omit language allowing nonrefundable fees or, at minimum, to make clear that such fees remain subject to a reasonableness review under Rule 1.5 and must be refunded to the extent unearned under Rule 1.16. Uhuru described repeated grievance investigations in which attorneys left fees in trust accounts and then treated those funds like operating money; in some cases, grievance staff found trust accounts shielding funds from creditors or tax liens. “Once they’re earned, get them out,” she said, supporting a prompt removal standard to prevent misuse.

John Allen, a long‑practicing attorney who filed written comments, argued that the court should not use Rule 1.15 to overturn past precedent such as Cooper or to broadly ban certain fee arrangements. Allen said classical retainers and some flat or upfront fees have recognized legal and practical roles and that reasonableness review under Rule 1.5 remains available to address abuses.

Speakers illustrated tradeoffs. Commenters pressed that short presumptive timelines (the comments reference 30 days) can give judges and regulators a benchmark and help identify attorneys leaving fees in trust too long; lawyers warned that inflexible timing could disrupt payroll, tax obligations and the business models of small firms that rely on retainers and payment plans. Several lawyers noted modern banking and payment technologies make frequent transfers less burdensome than in the past.

The court heard no vote or final action during the hearing. Several presenters recommended alternative approaches: adopt a presumptive benchmark (with flexibility for shorter or longer periods by agreement), keep timing guidance in comment language rather than the rule text, or move fee‑structure questions into a separate Rule 1.5 amendment process.

The record included written comment letters referenced during the hearing and examples used by speakers, including hypothetical and anecdotal scenarios involving $1,500 flat fees, a reported $50,000 nonrefundable fee example, and disciplinary investigations involving funds left in trust accounts. The disciplinary board and grievance commission both urged that any permissive language about nonrefundable fees be carefully limited and tied to Rule 1.5 reasonableness review.

The court’s staff will receive the oral comments for the public record as it continues to consider final language for the rules and comments.